More than one-third of sponsors (35%) plan to modify their
investment lineup in the next 12 months, according to Cogent Reports’ annual DC
Investment Manager Brandscape study. In addition, four new investment managers—Goldman
Sachs, J.P. Morgan Asset Management, John Hancock Funds and Prudential
Retirement—are now on sponsors’ top 10 list. Last year, Goldman was ranked 13th,
J.P. Morgan 11th, John Hancock 31st and Prudential 18th.
“Every year presents new opportunities for investment
managers to capture the attention of plan sponsors and gain further traction in
the DC [defined contribution] space,” says Linda York, vice president of Cogent
Reports. “While they’ve been active in the DC market for years, four investment
managers break into the top 10 this year, demonstrating that sizable results
can be achieved with the right strategy in place.” What really sets investment
managers apart, York adds, is “thought leadership,” which she says “only a
handful of investment managers excel at.”
For plan sponsors planning to change their investment lineup
in the next 12 months, the 2014 top 10 investment managers are:
Vanguard
Fidelity Investments
BlackRock
J.P. Morgan Asset Management
American Funds
Goldman Sachs
Prudential Financial
John Hancock Funds
T. Rowe Price
Charles Schwab Investment Management
Cogent’s study is based on an online survey of 620 plan sponsors conducted
between February 21 and March 6.
A survey of Vanguard retirement plan clients operating in three or more countries shows, like in the U.S., the DC conversation globally is centered on fees, effectiveness and efficiency.
A new report from Vanguard shows the majority of its global
retirement plan clients—some 90 companies holding $650 billion in plan assets
across three or more countries—have taken steps recently to streamline and
centralize retirement plan administration.
The main reasons given for this trend towards centralization and simplification were policy/organizational efficiency and risk management. As noted by
Vanguard, respondents were clear that full centralization remains an elusive and
likely unattainable goal, given local market rules and regulations that can vary both within and among countries. Vanguard
says even companies operating in just one country have to keep abreast of
an impressive amount of benefits and investing law—and going international
brings a significant set of challenges.
Interestingly, both small and large international organizations
are exploring opportunities around greater centralization of benefits and HR administration.
Large organizations appear the most energized and engaged in the conversation,
however, in part due to their ability to create greater economies of scale.
Some trends appear to be playing out the same
internationally as in the U.S., including the sweeping transition from a predominantly
defined benefit (DB) to a predominantly defined contribution (DC) approach to
retirement benefits. International plan sponsors seem to be even harder pressed to find sufficient time and resources to manage legacy DB offerings
while ensuring newer DC plans offer enough value for participants.
On average, 58% of international sponsors’ time, resources
and effort is spent on DB plans, Vanguard says, compared with 38% on DC plans. In
a sign that the U.S. is perhaps ahead of the long-term trend, the figure for
time spent on DB plans rose to 71% for non-U.S. headquartered respondents.
Vanguard researchers conclude DB plans will continue to
consume significant resources for both U.S. and international sponsors, while
support for DC plans will also need to grow as their popularity grows among
workers.
“Something will need to give,” the report continues. “Either
resources and costs will need to increase, or plan sponsors will need to find
ways to simplify the structure and approach to their global retirement plans.”
Vanguard finds liability-driven investing (LDI) is a popular
theme both in the U.S. and abroad, as sponsors focus more on smoothing and
controlling return streams than on maximizing risk and returns. Of the various implementation methods explored
for LDI, a glide-path approach was the most popular. When awarding investment mandates—especially
passive investing mandates—fees and tracking error were considered the most
important factors in assessing managers and investment funds. Net costs are a
significant consideration, Vanguard says, when sponsors are deciding on an
active manager, but the investment strategy and manager experience/performance
record are more important.
When asked how they expected the level of company
contributions to DC plans to change in the next five years, 57% of international
sponsors said they anticipate a moderate increase, while 14% will increase their
contributions dramatically. Vanguard concludes that an increased attitude of
shared responsibility for DC plan outcomes among plan sponsors, in the U.S. and
globally, will drive funding approach changes in the years ahead.